MNI INTERVIEW: BOJ To Mull New Policy Framework - Ex-BOJ Kameda

The Bank of Japan will consider a new policy framework after it exits negative interest rates to avoid market disruption and will refrain from signalling its hiking intentions to maintain maximum flexibility, former BOJ Chief Economist Seisaku Kameda told MNI.

Kameda, now executive economist at Sompo Institute Plus, the insurance giant’s research arm, told MNI in an interview the Bank will target maximum flexibility when it exits its easy policy settings. He declined, however, to speculate on the BOJ’s options.

MNI reported last month the Bank was discussing its post-negative rates framework, with either the unsecured overnight call loan rate or the interest rate on excess reserves floated as its new main policy rate. (See MNI POLICY: BOJ Mulls Framework Post Likely April Rate Liftoff)

Kameda noted a move in either March or April was a “close call,” however, the latter remained the most likely candidate. “The board members may not have sufficient time to carefully and perfectly examine data [at the March meeting] immediately after data is released,” he said.

In October, Kameda told MNI the BOJ would have sufficient data to exit its easy policy settings by March, noting the Bank would likely remove yield curve control first before exiting negative rates. (See MNI INTERVIEW: BOJ Yield Curve Move Possible In January-Kameda)

“Also, Governor [Kazuo] Ueda put emphasis on the quarterly benchmark forecast presented by bank staff and the board members’ discussion over the forecast,” Kameda noted.

The April 25-26 meeting will coincide with the publication of the BOJ's next outlook report, as well as key Tokyo CPI data.

COMMUNICATIONS KEY

The Governor had given communication with media and market players top priority, Kameda said, noting the market should anticipate any policy change that followed data – such as the branch managers’ meeting, the Tankan survey and anecdotal data.

The BOJ will likely also re-emphasise its government-bond buying position to curb surges of medium- to long-term interest rates, which are more important for economic activity when the policy rate is around zero percent, he added.

While the BOJ will likely hike its policy interest rate by 25 basis points this year after removing negative rates, it will not move towards 1% anytime soon, he said. “An equilibrium interest rate is estimated to be between slightly above 1-1.5%, judging from Japan’s potential growth rate of between 0.5-1.0%,” Kameda added, noting the Bank will likely prevent the 10-year interest rate from rising above 1% to maintain accommodative financial conditions.

Hefty wage hikes this year are likely, but whether they continue into 2025 remains an uncertainty, making it difficult for the BOJ to show its rate-hike path, he added.

The first core-core inflation forecast for fiscal 2026 in April's Outlook Report will likely print slightly above 2%, judging from the BOJ’s baseline scenario, he commented. “Even if the BOJ’s price view in fiscal 2026 is above 2%, I’m sceptical about sustainable wage hikes next year and it is questionable whether the policymakers truly believe the achievement of the 2% target in fiscal 2025 and 2026,” Kameda said.